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4. The Case for Fair Use

Fair use assists innovation

4.75 Exceptions
such as fair use that are flexible and technology-neutral can stimulate
innovation, particularly in ‘transformative markets’—that is, markets that
rights holders do not traditionally exploit, but that may nevertheless include
the use of copyright material.

4.76 Australia
has been called a ‘hostile regulatory environment for technology innovators and
investors’.[91]
This has been said to have ‘long discouraged innovation and investment by
technology providers and content owners alike’.[92]

4.77 Increasingly,
the introduction of fair use into copyright law is being looked to as something
that innovative, technology-focused countries have adopted and it is gaining
support across Europe.[93]

4.78 The
Australian Industry Group submitted that the current Copyright Act does
not provide the optimal foundation for Australia to succeed in the digital
economy, and supported the ALRC’s movement towards a more flexible and less
technology specific model for copyright law.[94]

4.79 Yahoo!7
submitted:

Under Australia’s existing copyright regime, very many
socially useful and economically beneficial technological innovations would
simply have no breathing space to emerge. They would be blocked at the first
post by a copyright regime that is insufficiently flexible to accommodate
technological innovation.[95]

4.80 Yahoo!7
provided an example of a technology that was ‘only possible due to the
flexibility offered by the US copyright regime’.[96]
One of its innovative mobile applications reproduces less than two seconds of
the audio stream of a television program that a user is watching and matches
that thumbprint against a database of thumbprints in order to inform the user what
program they are watching.

4.81 Universities
Australia referred to a LexisNexis commercial database which uses legal briefs
and motions filed with US courts. The marketing to lawyers is that this product
will enable them to ‘research how other litigators have framed similar,
successful arguments’ and to ‘gain a better understanding of emerging issues or
unfamiliar areas of law’.[97]
Universities Australia submitted that the publisher could ‘not have created
this useful research tool in Australia: it needed a fair use exception to do
so’.[98]

4.82 Similarly,
Google stated that it could not have created and started its search engine in
Australia under the current copyright framework, as ‘innovation depends on a
legal regime that allows for new, unforeseen technologies’.[99]
The AIMIA Digital Policy Group noted the adverse effect that the Australian
copyright regime was having on the Australian digital industry’s ability to
innovate and compete globally.[100]
Other stakeholders shared the view that the current copyright regime puts
Australian companies, universities, schools and individuals at a disadvantage
compared with those in the US, or other countries that have a fair use
exception.[101]

4.83 Universities
Australia submitted that Australian copyright law is limiting the way Australian
universities can deliver course content via MOOCs[102]
and take advantage of text and data technologies in research.[103]
In its view, Australian universities are at a comparative disadvantage to their
counterparts in fair use jurisdictions in this respect. It asked, ‘[w]ho knows
what new technologies will emerge in the years and decades to come that would
be blocked by inflexible copyright exceptions?’[104]

4.84 Some
stakeholders said that the current legal arrangements are not impeding
innovation, pointing to the ‘rapid and continued growth of the digital economy
in Australia’.[105]
A number of submissions noted that the technology sector, companies such as
Google and Facebook, and start-ups, are operating or even ‘thriving’ in
Australia under existing copyright laws.[106]
The Australian Film/TV Bodies submitted that:

The list of innovative online platforms that have
successfully launched in Australia, and which operate free of any active
threats of litigation, is extensive and continuing to grow while the Inquiry is
taking place.[107]

4.85 The
ALRC considers that it is not sufficient that innovative businesses ‘operate
free of active threats of litigation’. They should be able to operate confident
in the knowledge that they may use copyright material, if that use is fair.

4.86 The
Law Institute of Victoria considered that fair use ‘would promote a framework
to encourage innovation and investment in technological development in
Australia’.[108]
eBay submitted that a fair use exception ‘would enhance the environment for
e-commerce in Australia’,[109]
and both Google and Yahoo!7 considered that a regime based upon a flexible,
broad, principles-based exception would assist local start-ups:[110]

Application development can thrive in Australia if there is a
broader approach to how content can be used by others while still ensuring that
such use does not deprive the rights holder of a legitimate revenue stream or
impact the market value of the underlying work. Given the relatively low
barrier of entry to the digital innovation marketplace, it would also provide
software and application developers the ideal regulatory environment to
capitalize on the roll-out of the National Broadband Network.[111]

4.87 CAG
Schools stated:

The flexibility of the fair use exception in the US has in
effect operated as innovation policy within the copyright system because it
creates incentives to build innovative products, which yield complementary
technologies that enhance the value of the copyright works.[112]

4.88 The
ACCC submitted that flexible regulations can help avoid unnecessarily ‘curtailing
innovation and the creation of new copyright material’.[113]
Another stakeholder submitted that there is ‘real world evidence that fair use
is economically advantageous’.[114]

The copyright industries in the United States remain without
peer. These industries have achieved global dominance against the backdrop of a
domestic fair use defence. It is, of course, possible that this has occurred
despite—rather than with the assistance of—fair use, but it is down to
opponents of fair use to make this case.[115]

4.89 In
contrast, ARIA argued that fair use has only played a minor role in supporting
innovation in the US, noting fair use has been successfully invoked to permit
innovative technological uses in only a few cases.[116]

4.90 An
advantage of fair use, however, is that a person wishing to make an innovative
use of copyright material does not need to ask the permission of the court, or
the rights holder—as long as the use is fair. There are many innovative uses
that have never been the subject of litigation in the US or in Australia. But
in Australia, if infringement proceedings were commenced, the user would not be
able to argue that the use was fair (unless it was within one of the existing
fair dealing purposes).

4.91 The
conditions for innovation ‘depend on much more than the details of copyright
law, including everything from tax law to the availability of an educated
workforce to matters of business culture’.[117]
Nevertheless, an appropriate regulatory framework is a key aspect of promoting innovation.
The ALRC considers that the enactment of fair use would contribute to such an
environment and help make Australia a more attractive market for technology
investment and innovation.

4.92 The
Hargreaves Review stated that, while the economic benefits of fair use ‘may
sometimes have been overstated’, intellectual property issues are important for
the success of innovative, high technology businesses.[118]
The Hargreaves Review considered that the ‘very protracted political
negotiations’[119]
that would be necessary to introduce fair use in the UK, given the constraints
of EU law, made it unfeasible. This does not detract from the substantive
merits of fair use for Australia.

4.93 Professor
Hargreaves has written subsequently that fair use ‘has proven the backbone of a
healthy Internet-economy ecosystem in the US’ and also observed that ‘several
technologically ambitious small countries, including Israel, Singapore and
South Korea’ have adopted a version of fair use.[120]

4.94 Some
stakeholders submitted that the argument that fair use assists innovation takes
a narrow view,[121]
and fails to recognise rights holders’ innovations,[122]
licensing opportunities,[123]
innovations that are occurring which are not reliant on fair use,[124]
the economic contribution of the creative industries,[125]
and ‘the need for such innovations to be protected by strong and predictable
copyright laws’.[126]

4.95 Overly
broad copyright exceptions can arguably undermine the incentive not only to
create, but to publish and distribute on new platforms and in other innovative
ways. The digital environment presents new ways for rights holders to exploit
their material; if rights holders benefit from these new digital business
models, this should stimulate further creativity.

4.96 Copyright
assists innovation by giving rights holders a limited monopoly, thereby
increasing the incentive to create, publish and distribute their material. The
confidence that rights holders will be able to exploit their rights is
therefore also important to innovation. If rights holders are unsure whether
they will be able to exploit their rights exclusively, this could inhibit
creation and distribution. Certainty has been called ‘the cornerstone for
encouraging business investment and innovation’.[127]
A number of stakeholders submitted that the uncertainty of fair use would be a
disincentive to innovation.[128]
NAVA said it could ‘kill off the golden goose’.[129]

4.97 The
ALRC considers that fair use is sufficiently certain to ensure rights holders
are confident that they will be able to exploit their rights, and so to
stimulate creation. It has long been recognised that the copyright monopoly
must have its limits, in order to avoid restricting the creation of new works.

4.98 Further,
as noted in Chapter 3, by limiting the copyright monopoly, exceptions can also
increase competition and stimulate innovation more generally, including in
technologies and services that make productive use of copyright material. The
ALRC considers that fair use finds the right balance. It protects the interests
of rights holders, so that they are rewarded and motivated to create, in part
by discouraging unfair uses that harm their traditional markets. But
importantly, fair use also promotes ‘transformative uses’. Many of the
innovative uses discussed above—uses that many argue are fair and should not
require a licence—are ‘transformative uses’ that operate in ‘transformative
markets’. As discussed above, fair use promotes transformative use, as well as
important public interest uses.